This week I was asked by a friend who works in one department of the Beijing Municipal Government as well as by a member of our global senior management, what was the main driver pushing up Beijing Grade A office rents, which had increased more than 40% in 2011, and which had drawn the attention of investors across the world. So I thought that this would be a good topic for my blog in which I could share my answer with my friends and peers.
From the demand side, Beijing as the capital of China, is home to 41 Fortune Global 500 Companies, the second highest in number of any city in the world, and just behind Tokyo. In the past two years, more than 35% of the space absorbed was taken up by an owner-occupier, and this alleviated the pressure of new supply on the market. Aside from this, in 2011, the service sector contributed 76% of Bejing’s total GDP; the IT, retail, finance, R&D, and other sectors, have been expanding their businesses, and this has provided the fundamental demand for office space in Beijing.
From the supply side, while more than 20 Grade A office projects have been launched since 2010, half of these have been taken up by SOE companies before completion for use as headquarters. Some SOEs with funds available and ambitious business plans are expanding their office space tremendously. As for MNCs, China is the most important potential market for them, and will be the most important source of growth to drive their businesses. Firms in the energy, pharmaceutical, retail and finance sectors all expanded in mature or emerging commercial areas of Beijing last year.
With limited available space, the office market has changed in favour of landlords, who have increased rent quotations and reduced rent-free periods, which together has pushed up the rents of a number of projects to a record high.
About the author
Meggie Qin is the Head of Research for Jones Lang LaSalle in Beijing.